By: Debra Garcia
Industry analysts offered both good news and bad news following the release of U.S. newsprint consumption figures for November by the Pulp and Paper Products Council (PPPC).
The good news is that the continuing slide in newsprint consumption is not as dire as the numbers suggest, due to offsetting factors; the bad news is that the downward trend is expected to continue.
The release of consumption figures trailed the release of the PPPC’s other newsprint statistics on Dec. 22, as consumption data was not available at that time (Forestweb, Dec. 22).
November’s newsprint consumption by U.S. daily newspapers was down year-over-year by 7.0%, bringing the year-to-date total to 5.3% below a year earlier, according to the PPPC. However, analysts say mitigating factors such as the slide in basis weight should be considered.
“To be sure there are a number of different trends behind the consumption decline,” noted Mark Wilde, research analyst with Deutsche Bank. Because consumption figures track tonnage rather than surface area, they do not take into account the decline in grammage, which measured 47.5 g/m2 through September versus 48.2 g/m2 in 2004. “This suggests that perhaps 1.5% of the 7.0% drop may be tied to lighter basis weights,” Wilde said.
Publishers have also been cutting circulation in an effort to eliminate less profitable areas as well as to strengthen circulation numbers in order to restore credibility following the scandals over overstated circulation numbers last year. Thus, this may not be part of any downward trend in consumption.
However, the bulk of the drop in newsprint consumption is still related to declining newspaper circulation and reduced advertising revenues, Wilde noted. Still, those trends might be abating.
According to Paul Quinn, paper and forest products analyst with Salman Partners, circulation numbers released recently by Gannett and Knight Ridder indicate the rate of decline stabilizing at 2.9%.
Meanwhile, November ad lineage from Gannet, Knight Ridder, Tribune, Scripps, and Media General showed a year-over-year drop of 2.6% for November and a 1.9% decline year-to-date, noted Quinn.
The PPPC reported that total U.S. consumption was slightly better than dailies consumption, falling year-over-year by 3.8% in November and down 5.1% through the first 11 months. Quinn stated that, on a rolling average, total U.S. newsprint consumption was down another 31,000 tonnes in November to a level nearly 21% below 2000 levels.
However, the bright spot was consumption by commercial printers, which is calculated as the difference between total U.S. consumption and U.S. dailies consumption. In November, this was up 8,000 tonnes (+4.9%) compared to a month earlier and up 15,000 tonnes (+9.7%) from a year earlier, Quinn indicated.
With overall newsprint consumption declining in North America, analysts expect manufacturers to continue to shut down capacity in order to boost their chances of raising prices. “Newsprint producers will have to remove over 675,000 tonnes of capacity just to keep pace with dropping demand,” said Quinn.
Late last year, Abitibi-Consolidated Inc. permanently shut down approximately 494,000 tonnes/year of newsprint capacity at its Kenora, Ont., and Stephenville, Nfld., mills (Forestweb, Dec. 14). Currently, Stora Enso Port Hawkesbury Ltd. appears to be on the brink of idling its 190,000 tonnes/year newsprint machine (Forestweb, Jan. 4).
Other November newsprint statistics released by the PPPC on Dec. 22 showed North American newsprint mills operating at lower capacity ratios year-over-year in November than a year earlier. However, both consumer and mill inventories also dropped, giving producers a better chance of raising prices again early in 2006.
Manufacturers have announced a $40/tonne increase on newsprint to take effect in February, with Abitibi first out with the new attempt (Forestweb, Dec. 22). Newsprint prices rose steadily in 2005. Analysts are optimistic that prices will continue to increase given major producers’ determination to cut capacity.
“However, if consumption declines continue, there will likely be a need for accelerated closures to maintain pricing power,” noted Wilde. “The real trick? Moving from higher prices to real profitability.”